Find us

6/11 Prince of Wales Avenue South West Rocks,
PO Box 16 South West Rocks NSW 2431

T 02 6566 6250

Level 1 22 Belgrave Street Kempsey
PO Box 161 Kempsey NSW 2440

T 02 6562 3300

Loaning Money to a Friend – Not Always a Simple Repayment

You loaned money to someone and that person hasn’t paid you back – what should your next step be? 

Your friend approached you a few months ago in need of some money. He was in a bad financial situation and had numerous bills to pay. He said that all of his money was tied up, but he would be receiving a lot of money very soon to pay his debts. His Great-Uncle Bob had recently passed away and he would be receiving a large inheritance from him soon.

He asked that in the meantime, you loan him $25,000 to help make payments on the debts he owes. He agreed to have a loan contract drawn up, which both of you signed. You agreed that your friend would pay you $400 per month until he received the inheritance, so you went ahead and loaned your friend the $25,000.

However, 5 months go by and your friend hasn’t made any repayments. You have tried to contact him to request that he pay. You hear he has received his inheritance and has been going out every night shouting everyone at the local pub, bought a boat and a new 4WD. You are now getting very worried you may never get your $25,000 back and unsure about what to do next.


What should you do first?

Contact our office. We will provide initial advice to you about the loan agreement and the steps to take to recover the debt.

  • In some situations, it may be best to try and discuss the issue with the person who owes you money (debtor). You could remind them of their obligation to you to repay the debt, per the contract they signed. You could offer a payment plan if you so choose, and advise them that it would be less expensive for both of you not to have to go to court.
  • If step 1 isn’t available or appropriate, you could send a letter of demand to the debtor. A letter of demand generally states that unless the debtor pays by a certain date, court action will be taken.
  • In some circumstances, it may be better for both parties to attempt to negotiate the debt dispute instead of going to court. This is because court proceedings are generally expensive, long and stressful. These negotiations could occur with the help of your solicitor or you could both attend a mediation to attempt to resolve the matter.
  • If the debtor still does not pay or you aren’t able to reach an agreement about payment, you may be able to begin legal proceedings against the debtor. In the scenario above, as the debt owed is $25,000 the proceedings would likely commence in the General Division of the NSW Local Court, which deals with monetary claims which are more than $20,000 and up to $100,000.

If you have decided that going to court would be the best course of action, we may then draft a Statement of Claim and file it with the Court. The debtor will need to be served and they will have 28 days to file a Defence.

Then one of two things can happen:

  1. If a defence isn’t filed, we may be able to apply for a default judgment against the debtor.
  2. If a defence is filed, the matter could go to hearing.

There may also be a number of instances in between the date of filing the statement of claim and the hearing date in which court attendance is also required. Our firm can represent you at court through all stages of your debt recovery matter.

Litigation is a long, costly and time-consuming process and a successful outcome is not guaranteed. It is important to be informed of your rights and of other options available to potentially resolve your dispute. Therefore, if you are owed money it is important to seek advice from your solicitor to discuss your options and decide the best course of action in your circumstances.